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FIN%204420%20AR%20handout%20Chapter%2011

FIN%204420%20AR%20handout%20Chapter%2011 - b Difference...

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FIN 4420: International Trade Chapter 11: AR Problems Use the following information when answering the Cases: Spot Price $1.40/Euro 3-month forward $1.37/Euro Borrowing rate in Europe (LIBOR + 3 points) 5.07313% Borrowing rate in the US (LIBOR + 3 points) 3.9272% US 3 month investment rate 3% June Put Option (premium or fee) 4.2 (.0420) strike price $1.365/Euro 3 month spot price estimate: $1.36/Euro AR is for Euro 1,500,000 Minimum Acceptable AR to the company $2,050,000 Case 1: The Unhedged Firm: Calculate the gain/loss: Case 2: Forward Market: a. Calculate $amount earned using the forward market
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Unformatted text preview: b. Difference between Case 1 and Case 2 c. Was Minimum Acceptable AR earned? Case 3: Money Market a. Calculate the $amount earned using the Money Market Approach b. Calculate the Difference between Case 1 and Case 3 c. Was the minimum acceptable AR earned? Case 4: Option Market a. Calculate Cost to Purchase the Put Option b. Calculate the cost to borrow in USA c. Calculate the Net $amount earned using the Option Market Approach d. Calculate the difference between Case 1 and Case 4 e. Was the minimum AR amount earned?...
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